Morocco must explain flexible dirham, which will stoke inflation

RABAT (Reuters) - Morocco’s government needs to explain the benefits and risks of its new flexible currency system, which will stoke inflation, the head of the state High Planning Commission told Reuters on Wednesday.

Ahmed Lahlimi said annual inflation will rise to around 1.6 percent in 2018 from 0.2 percent last year as oil prices have been rising and because imports of food and other goods will become more expensive.

The North African country launched this week a more flexible foreign exchange system, part of free-market reforms recommended by the International Monetary Fund to protect the economy against external shocks and safeguard its foreign reserves.

The dirham has hardly moved since against major currencies, easing worries about a devaluation. The central bank has said it will counter any speculation using its reserves.

A lower dirham could stoke inflation as Morocco imports some of its food needs, hitting the poor.

Lahlimi said the government needed to explain to Moroccans advantages and risks of the currency changes. “There should be a national dialogue for the government explaining the factors behind the decision,” he said in an interview.

When asked whether the dirham move would lead to higher inflation he said: “Certainly.” He added that Morocco would have to spend more next year on imports of wheat and other basic goods as well as spare parts.

“We need details,” he said, adding that he wanted to know from the IMF whether the dirham move took into consideration the specific needs of the Moroccan economy.

The new system widened the band in which the dirham can trade against hard currencies to 2.5 percent on either side of a reference price, from the previous 0.3 percent.

EDUCATION

Lahlimi also said the government needed to invest more in education as Moroccan pupils spent on average only four to five years in school, one of world’s lowest rates.

“Lack of quality in education leads to poverty,” he said.

Lahlimi reiterated that economic growth was likely to slow to 2.8 percent in 2018 from 4 percent last year due to lower agricultural production and an overall weak performance of the industrial sector.

Morocco expects to harvest between 7 and 7.5 million tonnes of wheat this year, he said, although the farming sector is being affected by lower rainfall. The number of foreign tourists visiting the kingdom is expected to rise, Lahlimi said.